The Third Pillar: How Markets and the State Leave the Community Behind by Raghuram Rajan

In his thought-provoking book, The Third Pillar: How Markets and the State Leave the Community Behind, Raghuram Rajan, a distinguished economist and former Governor of the Reserve Bank of India, explores the intricate balance between markets, the state, and the community. Rajan argues that the neglect of the community, the “third pillar,” has led to significant socio-economic issues, including the rise of populism and social unrest.

The Three Pillars

Rajan’s framework revolves around three pillars: the state, markets, and the community. The state provides governance and regulation, markets drive economic activity and innovation, and the community offers social support and cohesion. Rajan posits that a healthy society requires a balance among these three pillars. However, in recent decades, the focus has shifted disproportionately towards markets and the state, sidelining the community.

Historical Context and Technological Shifts

Rajan delves into historical examples to illustrate how technological advancements have disrupted the balance among the three pillars. For instance, the Industrial Revolution significantly empowered markets and the state, but often at the expense of local communities. This pattern, Rajan argues, is repeating in the current era of globalization and technological change.

Consequences of Neglecting the Community

The book highlights the adverse effects of neglecting the community. As markets and the state grow more powerful, local communities often suffer from economic dislocation, social fragmentation, and a loss of identity. This imbalance has fueled the rise of populist movements, as people seek to reclaim a sense of belonging and control over their lives.

Proposed Solutions

Rajan advocates for a rebalancing of the three pillars by empowering local communities. He suggests policies that decentralize decision-making and strengthen local governance. By doing so, communities can better address their unique challenges and foster social cohesion. Rajan also emphasizes the importance of education and skills development to help individuals adapt to technological changes.

The Third Pillar offers a compelling analysis of the interplay between markets, the state, and the community. Rajan’s call to strengthen the community pillar is a timely reminder of the need for a more holistic approach to socio-economic development. By rebalancing these three pillars, societies can achieve greater stability, inclusiveness, and resilience in the face of ongoing global changes.